Should New Jersey cash in Aunt Betty’s gift to you?

Associated Press File PhotoThat gift card you've been holding on to? If you don't use it in two years, New Jersey is going to come after the remaining balance on it.

By Diann Smith and Marlys A. Bergstrom

You see it every day when you open your wallet. It is so old and has been stuck behind your credit cards for so long that you don’t often think about it.

Well, New Jersey is thinking about it very seriously, so seriously that the state has been to court over it — a two-year-old gift card from Aunt Betty, which has only $2.52 left on it.

Why is New Jersey so concerned about that old gift card rotting away in your wallet? State officials calculated that all of those cards — in wallets and drawers throughout New Jersey — total approximately $73 million dollars a year. And it’s unclaimed property.

In the United States, great protection is given to property rights. If, after a certain period of time, an owner does nothing with his intangible property, the state takes custody of the property for safekeeping until the owner returns to claim it. In the world of gift cards, the retailer or issuer of the gift card is initially responsible for finding the owner. Unfortunately, 99 percent of gift cards are issued without any “owner” information.

Many states never take away the owners’ rights to use the card. Provided the gift cards do not contain an expiration date and no fee is charged for failure to use the card, the states’ retailers are not required to remit unredeemed card balances to the states. Other states do require retailers to remit the monetary value of unredeemed gift card balances for “safekeeping.”

Before April 2010, New Jersey did not require retailers to remit such balances, but then, desperate for money, the state made a dramatic shift. Now, Garden State retailers must remit unredeemed gift card balances to the state after two years if there is no owner activity.

New Jersey takes the position that if the owner’s address is unknown, then the state in which the gift card was bought, as determined by the ZIP code, keeps the funds. (In other states, if an owner’s address is unknown, the state in which the retailer is incorporated takes custody of the funds — a rule established by the U.S. Supreme Court.)

Arguing the new law was unconstitutional, the New Jersey Retail Merchants Association, the New Jersey Food Council, American Express Travel Related Services Company and American Express Prepaid Card Management Corporation sued to prohibit the state from enforcing it. They argued that remitting unclaimed gift card balances to New Jersey, based upon the card having been purchased in the state, violated the Supreme Court’s rulings. A federal district court in New Jersey agreed, and the state was stopped from enforcing that portion of the law.

New Jersey is fighting back. The state treasurer notified retailers that procedures for retaining purchaser ZIP code information had to be in place by Jan. 3. And the state is asserting that ZIP code information is sufficient address information for determining what state should take custody of the funds.

The two sides headed back to court and, on Jan. 13, the judge ruled that her original decision did not apply to the retention of ZIP code information. That decision has been appealed to the U.S. Court of Appeals.

If New Jersey prevails, retailers will have a new and expensive administrative burden to add to their gift card programs. The impact for consumers? There have been rumblings that major retailers may cease selling gift cards in New Jersey.

More important, consumers’ property rights will be sacrificed for balanced state budgets.
Whom is the law helping? Is purchaser ZIP code information going to help restore unredeemed gift cards to their owners? Do you remember if Aunt Betty purchased that card for you when she lived in New Jersey, or after she moved to Florida?

Rest assured, that gift card may still be in your wallet, but New Jersey wants the $2.52 in its coffers.

Diann Smith and Marlys A. Bergstrom are attorneys with the nationwide law firm of Sutherland Asbill & Brennan LLP, specializing in unclaimed property issues. Join the conversation at njvoices.com.